CIBC’s 5-year Fixed Special, Sign of the Times

With the spring market on deck and bond yields sliding, big banks are sharpening their pencils on 5-year fixed pricing.

Today we saw BMO cut its “Smart” 5-year fixed rate by 20 basis points, from 3.49% to 3.29%. (Best BMO mortgage rates)

Then we saw CIBC launch a new 3.19% 5-year for high-ratio mortgages only. (Best CIBC mortgage rates)

That CIBC special is notable for two reasons:

1. It’s a solid rate for a Big 6 bank
2. It’s not often that banks widely advertise different rates for insured mortgages.

In fact, CIBC confirms that this is the first time the bank has ever had a special rate for eligible high-ratio mortgages.

And it’s not surprising that it’s starting now. Government policy changes in recent years make uninsured mortgages materially more expensive for lenders.

Moreover, big banks are trying to balance their mortgage portfolios because they’re becoming too heavily weighted in uninsured business. As of last fall (the latest numbers we have) banks were posting 18% year-over-year growth of uninsured mortgages, the highest such growth in years.

Hence, competition is getting feisty for insured borrowers. That’s driving big gaps between insured and uninsured rates.

Take the best 5-year fixed rates for example.

• Today’s lowest insured rate: 2.87%
  • Two years ago it was 2.28%
• Today’s lowest uninsured rate: 3.18%
  • Two years ago it was 2.50%

That’s a 0.31 percentage-point spread, up from 0.22 percentage points two years ago.

What does that mean? It means a lot more special offers are coming down the pipe for insured mortgages. Lenders like TD and Scotiabank already have superior rates for insured mortgage—if you ask (or go through a broker).

It also means a borrower with a skimpy 5% down payment gets a much better rate than someone making four times that down payment (putting 20% down).

Then again, at 5% down you still have to cough up default insurance fees of $4,000 per $100,000 borrowed. By contrast, the lower insured rate in our example only saves you about $1,300 over five years.

The moral: Keep putting down 20% or more…if you can.

The latest bank mortgage rates from the Big 6.